management information system

Introduction to System Concepts Unit 3

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Unit 3 Introduction to System Concepts

Structure

3.0 Introduction

3.1 Decision Making Process and Information Systems

3.2 Study of Systems Theory

Types of Systems

3.3 Role of Information Systems in Business

Planning, Control, Decision Making

3.4 Types of Enterprise Information Systems

TPS, OAS, KWS, MIS, DSS, EIS and their interrelationship

3.5 Summary

3.6 Terminal Questions

3.7 Answers


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3.0 Introduction

In the earlier unit, you came to know about the interrelation between Data-

Information-Knowledge dimensions; their types, interrelationship,

differences and characteristics; their importance in managerial process;

processing cycle & security aspects of data & information.

In this unit, we understand the Theory about Systems and their types; the

role of Information Systems in decision-making process and supporting

business functions; the spectrum of Enterprise Information Systems and

their inter-relationship. For a better understanding of this unit, prior

knowledge about the Information Technology for Management and

understanding of Data, Information and Knowledge – interrelationship,

differences and characteristics is recommended.

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A system (from Latin systēma, in turn from Greek systēma, "whole

compounded of several parts or members, system") is a set of interacting or

interdependent components forming an integrated whole. Decision making

can be regarded as the mental processes (cognitive process) resulting in

the selection of a course of action among several alternative scenarios.

Every decision making process produces a final choice. The primary role of

Information Systems is to augment the process of decision making within

organizations and support various business functions. An enterprise

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information system is generally any kind of computing system that is of

"enterprise class". This means typically offering high quality of service,

dealing with large volumes of data and capable of supporting some large

organization ("an enterprise").

Objectives:

After studying this unit, you should be able to:

Understand Systems, their types, and behavior

Explain the Decision Making Process

Appreciate the role of Information Systems in business

Explain the types of Enterprise Information Systems and their inter-

relationship

3.1 Systems Concepts

A system is a set of elements (often called 'components' instead) and

relationships which are different from relationships of the set or its elements

to other elements or sets. Most systems share common characteristics,

including:

Systems have structure, defined by components/elements and their

composition;

Systems have behavior, which involves inputs, processing and

outputs of material, energy, information, or data;

Systems have interconnectivity: the various parts of a system have

functional as well as structural relationships to each other.

Systems may have some functions or groups of functions

The term system may also refer to a set of rules that governs structure

and/or behavior.


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Systems Theory

Systems Theory is the trans-disciplinary study of the abstract organization

of phenomena, independent of their substance, type, or spatial or temporal

scale of existence. It investigates both the principles common to all complex

entities, and the (usually mathematical) models which can be used to

describe them. It involves in the interdisciplinary study of systems in

general, with the goal of elucidating principles that can be applied to all

types of systems at all nesting levels in all fields of research. The term does

not yet have a well-established, precise meaning, but systems theory can

reasonably be considered a specialization of systems thinking, a

generalization of systems science, a systems approach.

In this context the word systems is used to refer specifically to self-

regulating systems, i.e. that are self-correcting through feedback. Self-

regulating systems are found in nature, including the physiological systems

of our body, in local and global ecosystems, and in climate—and in human

learning processes.

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What is an Information System?

An information system and MIS (IS) - or application landscape - is any

combination of information technology and people's activities that support

operations, management and decision making. In a very broad sense, the

term information system is frequently used to refer to the interaction

between people, processes, data and technology. In this sense, the term is

used to refer not only to the information and communication technology

(ICT) that an organization uses, but also to the way in which people interact

with this technology in support of business processes.

Some make a clear distinction between information systems, computer

systems, and business processes. Information systems typically include an

ICT component but are not purely concerned with ICT, focusing in instead,

on the end use of information technology. Information systems are also

different from business processes. Information systems help to control the

performance of business processes.

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Alter argues for an information system as a special type of work system. A

work system is a system in which humans and/or machines perform work

using resources to produce specific products and/or services for customers.

An information system is a work system whose activities are devoted to

processing (capturing, transmitting, storing, retrieving, manipulating and

displaying) information.

As such, information systems inter-relate with data systems on the one

hand and activity systems on the other. An information system is a form of

communication system in which data represent and are processed as a

form of social memory. An information system can also be considered a

semi-formal language which supports human decision making and action.

Information systems are the primary focus of study for the information

systems (discipline) and for organizational informatics.

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Elements / Components of Information Systems

Following are considered as the elements of a system in terms of

Information systems:

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(A) Inputs & Outputs:

A major objective of a system is to produce an output that has value to its

user. Whatever the nature of the -output (goods, services, or information), it

must be in line with the expectations of the intended user. Inputs are the

elements (material, human resources, or data) that enter the system for

processing. Output is the outcome of processing. A system feeds on input to

produce output in the same way that a business brings in human, financial,

and material resources to produce goods and services. Determining the

output is the first step in specifying the nature, amount, and regularity of the

input needed to operate a system. For example, in systems analysis, the

first concern is to determine the user's requirements of a proposed

computer system i.e. specification of the output that the computer is

expected to provide.

(B) Processing:


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The processing is the element of a system that involves the actual

transformation of input into output. It is operational component of a system.

Processing may modify the input totally or partially, depending on the

specifications of the output. This means that as the output specifications

change, so does the processing.

(C) Control:

The control element guides the system. It is the decision making

subsystem that controls the pattern of activities governing input processing

and output. In an organizational context, management as a decision making

body controls the inflow and outflow of activities that affect the welfare of the

business. In computer system, the operating system and accompanying

software influence the behavior of the system.

In system analysis, knowing the attitude of the individual who controls the

area for which a computer is being considered can make a difference

between the success and failure of the installation.

Management support is required for securing control and supporting the

objective of the proposed change.

Open Loop Systems:

In these systems control is carried out by monitoring output and by

receiving environmental input. Some control is therefore exercised from

outside the system, by intervention administered externally.

Closed Loop Systems:

In these systems output is fed back to input and there is no input from

the environment. The output thus initiates the control activity to alter the

system's input or its activities.

(D) Feedback:

Control in a dynamic system is achieved by feedback. Feedback measures

output against a standard in some form of cybernetic (automatic, electronic,

streamlined) procedures that includes communication and controls.

Output information is fed back into the input and/or to management

(controller) for consideration, calculation, or reflection. After the output is

compared against performance standards, change can result in the input or

processing and, consequently, the output.


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Another form of feedback comes after the system is implemented. The user

informs the analyst about the performance of the new installation. This

feedback often results in enhancements to meet the user's requirements.

Following are the type of feedback:

Positive Feedback:

Very generally, this result in successively greater deviations from the

results actually sought. In fact, positive feedback results in some control

activity which causes performance or output to continue deviating (or

even increases the deviation) from what is required to happen. Positive

feedback is necessary for organizational growth.

Negative Feedback:

Negative feedback shows that the system is deviating from the intended

path and that some change is therefore required to correct this situation.

The control action to be taken generally reverses the trend.

(E) Environment:

The environment is the system within which an organization operates. It is

the source of external elements that disturb the system. In fact, it often

determines how a system must function. The environment is the collection

of elements; these elements surround the system and often interact with it.

(F) Boundaries:

A system should be defined by its boundaries, the limits that identify its

components, processes, and interrelationships when it interfaces with

another system. Systems are normally delimited by boundaries, which

separates them from its environment. Anything within the boundary is part of

system; any thing outside is part of the environment. What is included in the

system and what is included in the environment depend on the particular

problem being studied.

3.2 Decision Making Process and Information Systems

Decision making is the study of identifying and choosing alternatives based

on the values and preferences of the decision maker. Making a decision

implies that there are alternative choices to be considered, and in such a

case we want not only to identify as many of these alternatives as possible


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but to choose the one that (1) has the highest probability of success or

effectiveness and (2) best fits with our goals, desires, lifestyle, values, and

so on.

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Decision making is the process of sufficiently reducing uncertainty and

doubt about alternatives to allow a reasonable choice to be made from

among them. This definition stresses the information-gathering function of

decision making. It should be noted here that uncertainty is reduced rather

than eliminated. Very few decisions are made with absolute certainty

because complete knowledge about all the alternatives is seldom possible.

Thus, every decision involves a certain amount of risk. If there is no

uncertainty, you do not have a decision; you have an algorithm - a set of

steps or a recipe that is followed to bring about a fixed result.

Decision Making Strategies

As you know, there are often many solutions to a given problem, and the

decision maker's task is to choose one of them. The task of choosing can be

as simple or as complex as the importance of the decision warrants, and the

number and quality of alternatives can also be adjusted according to


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importance, time, resources and so on. There are several strategies used

for choosing. Among them are the following:

1. Optimizing. This is the strategy of choosing the best possible solution to

the problem, discovering as many alternatives as possible and choosing the

very best. How thoroughly optimizing can be done is dependent on:

A. importance of the problem

B. time available for solving it

C. cost involved with alternative solutions

D. availability of resources, knowledge

E. personal psychology, values

Note that the collection of complete information and the consideration of all

alternatives is seldom possible for most major decisions, so that limitations

must be placed on alternatives.

2. Satisficing. In this strategy, the first satisfactory alternative is chosen

rather than the best alternative. If you are very hungry, you might choose to

stop at the first decent looking restaurant in the next town rather than

attempting to choose the best restaurant from among all (the optimizing

strategy). The word satisficing was coined by combining satisfactory and

sufficient. For many small decisions, such as where to park, what to drink,

which pen to use, which tie to wear, and so on, the satisficing strategy is

perfect.

3. Maximax. This stands for "maximize the maximums." This strategy

focuses on evaluating and then choosing the alternatives based on their

maximum possible payoff. This is sometimes described as the strategy of

the optimist, because favorable outcomes and high potentials are the areas

of concern. It is a good strategy for use when risk taking is most acceptable,

when the go-for-broke philosophy is reigning freely.


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4. Maximin. This stands for "maximize the minimums." In this strategy, that

of the pessimist, the worst possible outcome of each decision is considered

and the decision with the highest minimum is chosen. The Maximin

orientation is good when the consequences of a failed decision are

particularly harmful or undesirable. Maximin concentrates on the salvage

value of a decision, or of the guaranteed return of the decision. It's the

philosophy behind the saying, "A bird in the hand is worth two in the bush."

Decision Making Process

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1. Defining the Problem: The first step towards a decision-making

process is to define the problem. Obviously, there would be no need

to make a decision without having a problem. So, the first thing one

has to do is to state the underlying problem that has to be solved.

You have to clearly state the outcome that you desire after you have

made the decision. This is a good way to start, because stating your

goals would help you in clarifying your thoughts.

2. Develop Alternatives: The situation of making a decision arises

because there are many alternatives available for it. Hence, the next

step after defining the main problem would be to state out the

alternatives available for that particular situation. Here, you do not


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have to restrict yourself to think about the very obvious options,

rather you can use your creative skills and come out with

alternatives that may look a little irrelevant. This is important

because sometimes solutions can come out from these out-of-the-

box ideas. You would also have to do adequate research to come up

with the necessary facts that would aid in solving the problem.

3. Evaluate the Alternatives: This can be said to be one of the most

important stages of the decision-making process. This is the stage

where you have to analyze each alternative you have come up with.

You have to find out the advantages and disadvantages of each

option. This can be done as per the research you have done on that

particular alternative. At this stage, you can also filter out the options

that you think are impossible or do not serve your purpose. Rating

each option with a numerical digit would also help in the filtration

process.

4. Make the Decision: This is the stage where the hard work you have

put in analyzing would lead to a proper decision. The evaluation

process would help you with clearly looking at the available options

and you have to pick whichever you think is the most applicable. You

can also club some of the alternatives to come out with a better

solution instead of just picking out any one of them.

5. Implement the Solution: The next obvious step after choosing an

option would be implementing the solution. Just making the decision

would not give the result one wants. Rather, you have to carry out on

the decision you have made. This is a very crucial step because all

the people involved in implementation of a solution should know

about their implications. This is very essential for the decision to give

successful results.

6. Monitor your Solution: Just making a decision and implementing it,

is not the end of the decision-making process. It is crucial to monitor

your decision regularly once they are implemented. At this stage,

you have to keep a close eye on the progress made by

implementing the solutions. You may need to measure the results of

implementations against your expected standards. Monitoring of

solutions since early stage may also help you to alter your decisions,

if you notice deviation of results from your expectations.


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3.3 Types of Information Systems

For most businesses, there are a variety of requirements for information.

Senior managers need information to help with their business planning.

Middle management need more detailed information to help them monitor

and control business activities. Employees with operational roles need

information to help them carry out their duties.

As a result, businesses tend to have several "information systems"

operating at the same time. This revision note highlights the main categories

of information system and provides some examples to help you distinguish

between them. The main kinds of information systems in business are

described briefly below:


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Executive Support Systems

An Executive Support System ("ESS") is designed to help senior

management make strategic decisions. It gathers analyses and summarizes

the key internal and external information used in the business.

A good way to think about an ESS is to imagine the senior management

team in an aircraft cockpit - with the instrument panel showing them the

status of all the key business activities. ESS typically involves lots of data

analysis and modelling tools such as "what-if" analysis to help strategic

decision-making.

Management Information Systems

A management information system ("MIS") is mainly concerned with internal

sources of information. MIS usually take data from the transaction

processing systems (see below) and summarize it into a series of

management reports.

MIS reports tend to be used by middle management and operational

supervisors.

Decision-Support Systems

Decision-support systems ("DSS") are specifically designed to help

management make decisions in situations where there is uncertainty about

the possible outcomes of those decisions. DSS comprise tools and

techniques to help gather relevant information and analyse the options and

alternatives. DSS often involves use of complex spreadsheet and databases

to create "what-if" models.

Knowledge Management Systems

Knowledge Management Systems ("KMS") exist to help businesses create

and share information. These are typically used in a business where

employees create new knowledge and expertise - which can then be shared

by other people in the organization to create further commercial

opportunities. Good examples include firms of lawyers, accountants and

management consultants.


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KMS are built around systems which allow efficient categorisation and

distribution of knowledge. For example, the knowledge itself might be

contained in word processing documents, spreadsheets, PowerPoint

presentations. internet pages or whatever. To share the knowledge, a KMS

would use group collaboration systems such as an intranet.

Transaction Processing Systems

As the name implies, Transaction Processing Systems ("TPS") are

designed to process routine transactions efficiently and accurately. A

business will have several (sometimes many) TPS; for example:

- Billing systems to send invoices to customers

- Systems to calculate the weekly and monthly payroll and tax payments

- Production and purchasing systems to calculate raw material requirements

- Stock control systems to process all movements into, within and out of the

business

Office Automation Systems

Office Automation Systems are systems that try to improve the productivity

of employees who need to process data and information. Perhaps the best

example is the wide range of software systems that exist to improve the

productivity of employees working in an office (e.g. Microsoft Office XP) or

systems that allow employees to work from home or whilst on the


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move.

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3.4 Role of Information Systems in Business

The emergence of a global economy, transformation of industrial

economies, transformation of the business enterprise, and the emergence

of digital firm make information systems essential in business today.

Information system is a fondation for conducting business today. In many

businesses, survival and the ability to achieve strategic business goals is

difficult without extensive use of information technology. There are six

reasons or objectives why businesses use information system:

1. Operational excellence. Business improve the efficiency of their

operations in order to achieve higher profitability. Information systems are

important tools available to managers for achieving higher levels of

efficiency and productivity in business operations. A good example is Wal-


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Mart that uses a RetailLink system , which digitally links its suppliers to

every one of Wal-Mart's stores. As soon as a customer purchase an item ,

the supplier is monitoring the item , knows to ship a replacement to the

shelf.

2. New products, services, and business models. Information system is

a major tool for firms to create new products and services, and also an

entirely new business models. A business model describes how a company

produces, delivers, and sells a product or service to create wealth.

Example: Apple inc transformed an old business model based on its iPod

technology platform that included iPod, the iTunes music service, and the

iPhone.

3. Customer/supplier understanding. When a business serves its

customers well, the customers generally respond by returning and

purchasing more. This raises revenue and profits. The more a business

engages its suppliers, the better the suppliers can provide vital inputs. This

lowers the cost. Example: The Mandarin Oriental in Manhattan and other

high-end hotels exemplify the use of information systems and technology to

understand customer requirements they use computers to keep track of

guests' preferences, such as their preferred room temperature, check-in

time, television programs.

4. Improved decision making. Many managers operate in an information

bank, never having the right information at the right time to make an

informed decision. These poor outcomes raise costs and lose customers.

Information system made it possible for the managers to use real time data

from the marketplace when making decision. Example: Verizon Corporation

uses a Web-based digital dashboard to provide managers with precise real -

time information on customer complains, network performance.. Using this

information managers can immediately allocate repair resources to affected

areas, inform customers of repair efforts and restore service fast.

5. Competitive advantage. When firms achieve one or more of these

business objectives (operational excellence, new products, services, and

business models, customer/supplier intimacy, and improved decision

making) chances are they have already achieved a competitive advantage.

Doing things better than your competitors, charging less for superior


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products, and responding to customers and suppliers in real time all add up

to higher sales, and higher profits. Example: Toyota Production System

focuses on organizing work to eliminate waste, making continual

improvements, TPS is based on what customers have actually ordered.

6. Day to day survival. Business firms invest in information system and

technology because they are necessities of doing business. This necessity

is driven by industry level changes. Example: Citibank introduced the first

automatic teller machine to attract customers through higher service levels,

and its competitors rushed to provide ATM's to their customers to keep up

with Citibank. Providing ATMs services to retail banking customers is simply

a requirement of being in and surviving in the retail banking business. Firm

turns to information systems and technology for providing capability to

respond to these.

Information systems are the foundation for conducting business today. In

many industries, survival and even existence without extensive use of IT is

inconceivable, and IT plays a critical role in increasing productivity. Although

information technology has become more of a commodity, when coupled

with complementary changes in organization and management, it can

provide the foundation for new products, services, and ways of conducting

business that provide firms with a strategic advantage.


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